As stock markets attempt to rally ahead of the weekend the Australian Dollar to Euro (AUD/EUR) exchange rate has been making modest gains on the back of weaker Eurozone GDP figures.
Risk aversion has largely dominated markets this week, in spite of the absence of trading on the Shanghai Composite Index, as investors show increasing concern over the outlook of the global economy. This naturally dented the appeal of the Australian Dollar (AUD), with the commodity-correlated currency also dragged down as a result of the latest comments from Fed Chair Janet Yellen. As Yellen failed to rule out the possibility of another interest rate hike in the near future the US Dollar (USD) strengthened further, weighing on the ‘Aussie’, as speculation increased that the Reserve Bank of Australia (RBA) could be prompted to cut interest rates in response.
The Euro (EUR), meanwhile, was given a sharp boost on the back of the Riksbank’s unexpected decision to push interest rates further into negative territory. This move appeared designed to pre-emptively counter the European Central Bank’s (ECB) anticipated March monetary loosening measures, weakening the Swedish Krona (SEK) while shoring up the single currency. Despite concerns that this could herald the start of a currency war, and the increasing likelihood that the ECB will act more decisively next month, the Euro nevertheless made strong gains against the ‘Aussie’ as a result.
Ahead of the weekend, however, the Australian Dollar to Euro (AUD/EUR) exchange rate has been regaining some of its lost ground in spite of a more disappointing Australian Home Loans figure. While lending did accelerate on the month in December from 1.9% to 2.6% this nevertheless fell short of the forecast 3.0% increase, leading to a more limited show of support for the antipodean currency.
Pundits have been disappointed by the latest raft of Eurozone GDP results on Friday, as the currency union shows further signs of being negatively impacted by the wider global slowdown. Of particular concern were the Italian and Greek figures, which fell short of forecast and signalled that the Hellenic nation has continued its slide into recession. As a result the bullishness of the Euro has sharply diminished, shoring up the AUD/EUR currency pair.
Sentiment towards the ‘Aussie’ is likely to remain generally bearish next week, however, as investors await the release of the RBA’s February meeting minutes. If policymakers are shown to have taken a more dovish tone with regards to the possibility of fresh monetary loosening the antipodean currency is expected to soften. Should the tone of comments prove slightly more optimistic, particularly in the wake of the strong employment data seen in recent months, the AUD/EUR exchange rate could achieve a stronger rally.
At the time of writing, the Australian Dollar to Euro (AUD/EUR) exchange rate was trending higher at 0.6295, while the Euro to Australian Dollar (EUR/AUD) pairing was slumped around 1.5881.
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